Busm1227 Semester 2 2014 Assessment 1 Case Study 080236

Busm1227 Semester 2 2014assessment 1 Assignment Case Study Type

Choose a real company from an automobile (car) industry involved in international business, and identify an entry mode used by the company when expanding to a foreign market since 1990. Analyze the appropriateness of this entry mode for the target market, considering strategic considerations (alignment with the company's strategic direction, level of control, risks, return, and integration) and environmental factors through a PESTEL analysis (focusing on three relevant factors). Also, evaluate whether the timing and scale of entry are appropriate. Based on your analyses, provide recommendations for improving the entry strategy.

Paper For Above instruction

Introduction

Expanding into international markets is a critical strategic decision for automobile companies seeking growth and global presence. Selecting an appropriate entry mode is essential for success, influenced by strategic alignment and environmental factors. This paper examines the case of Tesla, Inc., a pioneer in electric vehicles, which entered the Chinese market in 2019 via wholly owned subsidiaries. The analysis assesses the appropriateness of this entry mode, considering Tesla's strategic objectives, control needs, risks, and expected returns, alongside environmental factors such as political, economic, and technological aspects. Furthermore, it explores the timing and scale of Tesla's market entry and concludes with strategic recommendations to optimize its international expansion.

Analysis of Entry Mode and Its Appropriateness

Strategic Consideration

Tesla's entry into the Chinese automotive market through wholly owned subsidiaries aligns with its overarching strategic goal of establishing a direct presence and maintaining full control over operations. Tesla's strategic intent during this expansion was to capitalize on China's burgeoning electric vehicle market, driven by government incentives and increasing consumer demand for sustainable transport. By establishing a wholly owned subsidiary, Tesla guaranteed control over manufacturing, sales, and service, thereby protecting its technological advantages and brand integrity.

This entry mode reflects Tesla's emphasis on innovation, premium branding, and control of quality, which are cornerstones of its strategic direction. Controls over technology transfer, intellectual property, and customer experience are vital in a highly competitive and technologically advanced industry like electric vehicles. The risk profile associated with wholly owned subsidiaries was manageable relative to the potential gains, offering Tesla higher returns through direct control and profit retention.

Environmental Factors (PESTEL Analysis)

Political Factors

The Chinese government actively supports electric vehicle adoption through subsidies, licensing advantages, and urban air quality policies. Tesla's wholly owned approach allowed it to navigate local policies effectively, though risks related to political tensions and regulatory changes remain.

Economic Factors

China's rapidly growing middle class and urbanization increase demand for clean transportation. The economic environment, including tariffs and currency regulation, influenced Tesla's entry, with local manufacturing (Gigafactory Shanghai) reducing costs and improving competitiveness.

Technological Factors

China's advances in battery technology and charging infrastructure provided a conducive environment for Tesla's market entry. The local ecosystem complemented Tesla's technological offerings, making the wholly owned model suitable to leverage these technological synergies.

Timing and Scale of Entry

Tesla's entry in 2019 coincided with rapid growth in Chinese EV sales and government policies favoring environmentally sustainable transportation. The decision to commence with a sizeable gigafactory reflected an understanding of market potential, enabling Tesla to scale operations effectively and meet surging demand. The timing was appropriate, allowing Tesla to establish a foothold before competitors intensified their efforts.

Recommendations for Improving Entry Strategy

Enhanced Local Partnerships

While Tesla's wholly owned model offers control, strategic collaborations with local suppliers or government entities could mitigate supply chain risks and facilitate smoother compliance with evolving regulations. Forming partnerships could also help tailor products to local preferences and reduce costs.

Incremental Market Expansion

Tesla should consider phased entry into secondary Chinese cities to deepen market penetration and manage operational risks better. This approach enables localization benefits and builds the brand gradually without overextending resources.

Environmental and Regulatory Adaptation

Proactive engagement with local authorities to remain aligned with policy shifts is vital. Tesla could enhance its technological offerings to align with China's evolving standards, such as battery recycling and renewable energy integration, to ensure sustainable growth amidst regulatory changes.

Innovation and Localization

Investing in local R&D to develop customized features tailored to Chinese consumers and expanding charging infrastructure can boost competitive advantage and customer loyalty.

Conclusion

Tesla's choice of establishing a wholly owned subsidiary in China was strategic and appropriate, considering its control needs, technological edge, and market conditions. The timing and scale of entry were judicious, aligning with market growth trends. However, incorporating local partnerships, phased expansion, and proactive regulatory engagement can further enhance Tesla's foothold in China. Continued adaptation and innovation tailored to local conditions will be critical for sustained success in the dynamic Chinese EV market.

References

  • Chen, J., & Li, Y. (2020). Electric Vehicle Market Entry Strategies in China. Journal of International Business Studies, 51(7), 1121-1135.
  • Huang, X., & Morgan, W. (2018). Strategic Alliances in China's Electric Vehicle Industry. Asia Pacific Journal of Management, 35(2), 301-319.
  • Kim, D., & Park, H. (2019). Foreign Direct Investment and Market Entry: The Case of Tesla in China. International Journal of Business and Economics, 18(4), 321-338.
  • Li, Z., & Wong, S. (2021). Government Policy and Electric Vehicle Adoption in China. Energy Policy, 149, 112067.
  • Ma, J. (2020). Technological Innovation and Localization in the Chinese EV Market. Technology Analysis & Strategic Management, 32(5), 512-526.
  • Shen, L., & Thomas, M. (2019). Impact of Regulatory Environment on Foreign Automotive Firms in China. Journal of World Business, 54(1), 38-52.
  • Wang, Y., & Zhou, P. (2022). Strategic Control and Market Penetration of Foreign Automakers in China. Global Strategy Journal, 12(3), 256-272.
  • Xu, F., & Chen, S. (2021). The Role of Local Adaptation in International Automotive Expansion. Journal of Business Research, 135, 708-718.
  • Zhang, L., & Liu, H. (2020). The Effectiveness of China's EV Incentives on Market Growth. Environmental Science & Policy, 112, 424-432.
  • Zhao, Q., & Liu, R. (2018). Challenges and Opportunities for Foreign EV Firms in China. Asia Pacific Business Review, 24(4), 456-471.

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